Investors await update on Walmart U.S.

AndriaCheng

NEW YORK (MarketWatch) — Ahead of Wal-Mart Stores Inc.’s earnings release on Tuesday, investor attention on the world’s largest retailer is on whether it can reverse eight straight quarters of negative same-store sales for Walmart U.S., its biggest unit.

That’s because that business represented more than three-fifths of the Bentonville, Ark.-based company’s
WMT, -1.58%
about $420 billion in sales last year. Its contribution to the company’s profit is even bigger, with analysts estimating it to be nearly three-quarters of the total.

Walmart U.S. is also the one division that’s in need of a turnaround. Analysts projected gains at both the company’s international unit and Sam’s Club wholesale-membership chain.

Wal-Mart has forecast second-quarter profit from continuing operations would rise to $1.05 to $1.10 a share from 97 cents a year earlier. It projected Walmart U.S. same-store sales — a key industry measure that strips out the impact of newly opened and closed stores — to be in the range of being down 1% to be up 1% in the period ended July 29.

Analysts expect same-store sales at the unit to drop 0.6%, according to Thomson Reuters.

At issue are the macroeconomic concerns, as well as the higher gasoline prices and food costs that have hurt low-income shoppers. The company has said its consumers’ spending pattern is closely tied to when they are paid, and they’ve seen signs of their trading down to cheaper products within some categories.

Wal-Mart also is addressing a prior merchandise misstep to bring products such as hunting gear and plus-sized apparel back into stores.

During the quarter, the company opened a smaller-format Walmart Express chain to penetrate rural and urban markets, though analysts said the concept is still too small to move the needle. To drive traffic and spur demand, Wal-Mart also has expanded its financial services and has launched a video-streaming service on its website via its acquired Vudu business.

“Investors are waiting for U.S. [same-store sales] to turn the corner,” said Stifel Nicolaus & Co. analyst David Schick. It “continues to face headwinds of a pressured core consumer driven by persistent unemployment and high (though moderating) gas prices.”

Meanwhile, while Walmart U.S. is refocusing on its “everyday low prices” pitch and touting that it’ll match competitors’ advertised prices, different surveys have showed the retailer may be losing its edge on price.

Consultancy WSL Strategic Retail said in a report earlier this month that 86% of Walmart shoppers, in its April survey of 1,500 of them, no longer believe that Wal-Mart has the lowest prices. The survey results showed the company’s most frequent shoppers believe that dollar stores have lower prices than the retailer.

Separately, Morgan Stanley analyst Mark Wiltamuth, in his July coverage report, said consumers’ perception that Wal-Mart may be losing its price edge is the company’s biggest challenge.

His May survey of about 1,500 consumers, in which about 1,150 of them had shopped at a Wal-Mart U.S. store in the previous three months, showed three-fifths of respondents think that the company’s prices are no longer the lowest, even though they are still better than most stores. Read more about the analyst’s report.

Walmart U.S. may be getting more aggressive on the price front, though. By focusing on basic apparel like T-shirts, jeans and underwear, it has increased rollbacks, or temporary price cuts, for those items “significantly” this back-to-school season, according to Citigroup analyst Deborah Weinswig. Read more about retailers waging back-to-school price war.

The retailer is “focused on widening the pricing gap with its competition over the next year,” Weinswig wrote in a report following a back-to-school store tour sponsored by Wal-Mart. “If the company is successful in lowering its prices relative to its peers, it should help drive increased volume and market share.”

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